NASAA Updates Investment Advisor Best Practices

The North American Securities Administrators Association (NASAA) has issued an updated set of best practices to help investment advisors stay in compliance. Given the current regulatory environment, advisors should take these guidelines seriously.

NASAA President and North Dakota Securities Commissioner Karen Tyler said the best practices were developed after a nationwide series of coordinated examinations of investment advisers by 43 state and provincial securities examiners revealed a significant number of problem areas. Tyler said 418 examinations of investment advisers were conducted between January 1, 2007 and May 31, 2007. These exams revealed 2,135 deficiencies in 13 compliance areas.

The top five categories with the greatest number of deficiencies identified in the examinations involved registration, unethical business practices, books and records, supervisory/compliance, and privacy. In the unethical sales practices area, NASAA found 198 advisers representing 318 unethical business practice deficiencies, including contract deficiencies, unsuitable recommendations, excessive fees, and misrepresenting qualifications, services, or fees.

To stay in compliance, NASAA suggests investment advisors:

• Review and revise the Form ADV and disclosure brochure annually to reflect current and accurate information.
• Review and update all contracts.
• Prepare and maintain all required records including financial records.
• Prepare and maintain client profiles that show suitability information.
• Prepare a written compliance and supervisory procedures manual relevant to the type of business.
• Prepare and distribute a privacy policy initially and annually.
• Keep accurate financials. File timely with the jurisdiction. Maintain surety bond if required.
• Calculate and document fees correctly in accordance with contracts and ADV.
• Review and revise all advertisements, including website and performance advertising, for accuracy.
• Implement appropriate custody safeguards, if applicable.
• Review solicitor agreements, disclosure, and delivery procedures.

What “Red Flags” are affecting your business? The National Ethics Bureau welcomes your input. Send your comments to: hlew@ethicscheck.com